Sangoma Technologies Corp.
(STC-T) C$5.52
Q4/F23 Preview: Focus on F2024 Guidance and New Leadership
Event
Q4/F23 Results: Wednesday, September 27, after market close. Conference Call: 5:30 p.m. ET (Dial-in: 1-800-319-4610). Impact: NEUTRAL
Looking to finish up strong. Our Q4/F23 revenue forecast of $63.2mm is in line with consensus and guidance. The implied 5% y/y decline is due to its lumpy, lower-margin product revenue, which remains under pressure due to macro-driven delays in customer capex spending (echoed by peers, RingCentral and 8x8), supply- chain issues, and the stronger U.S. dollar. However, we expect continued steady Services revenue growth (up 2.3% q/q, in line with recent quarters), which compares favourably with both RingCentral (1.1% q/q growth in subscription revenue) and 8x8 (services revenue down 0.8% q/q) in the June quarter.
Expecting record Adjusted EBITDA margins. Our Adjusted EBITDA estimate of $12.6mm is in line with consensus and guidance. We believe the company has done a great job of quickly getting margins back to pre-NetFortris acquisition levels (achieved last quarter), similar to what happened following the Digium acquisition, with Adjusted EBITDA margins back to historical highs of almost 20%.
Focus on F2024 guidance and commentary from new leadership. We assume that Sangoma will continue to provide (annual) guidance under new CEO Charles Salameh and COO Jeremy Wubs, who started work earlier this month. We are forecasting F2024 revenue of $266.8mm and Adjusted EBITDA of $52.9mm, in line with consensus ($264.9mm/$52.3mm). The company has also indicated that it would start providing SaaS-related metrics from F2024, which it hopes will allow investors to better assess its growth trajectory.
We do not expect any major revisions in the updated strategy outlined earlier this year by Sangoma's largest shareholder and Chairman, Norm Worthington III, following the departure of ex-CEO Bill Wignall. Especially given where the shares are trading, we believe M&A activity will remain on the back-burner, with the near-term focus remaining on driving stronger organic growth and operational improvements.
TD Investment Conclusion
We are maintaining our C$9.50 target price, based on 5.0x our C2024 Adjusted EBITDA estimate.